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Investor Sues Hewlett-Packard over Autonomy Write-Down

Lawsuit alleges HP made false and misleading statements about Autonomy.

Hewlett-Packard Co. was sued by an investor over an $8.8 billion write-down that the company said was partly related to falsified finances at Autonomy Corp., the British software maker it bought last year.

The shareholder, in a complaint filed yesterday federal court in San Francisco, alleges that Hewlett-Packard issued false and misleading statements. The company concealed that it had gained control of Autonomy based on financial statements that were unreliable because of accounting manipulation, according to the complaint. Hewlett-Packard Chief Executive Officer Meg Whitman and the company’s former CEO, Leo Apotheker, are named as defendants, along with Chief Financial Officer Catherine Lesjak.

“At the time Hewlett-Packard agreed in principle to acquire Autonomy, defendants were looking to unwind the deal in light of the accounting irregularities that plagued Autonomy’s financial statements,” according to the complaint.

Hewlett-Packard said Nov. 20 that $5 billion of the total charge is due to accounting practices, which were disclosed by a senior executive at Autonomy. Hewlett-Packard said it referred the matter to U.S. and U.K. securities regulators and will also pursue civil litigation.

Hewlett-Packard said in a statement last week that some former members of Autonomy’s management team used accounting misrepresentations to inflate its underlying financial performance before the acquisition. Mike Lynch, who founded Autonomy, defended the company’s accounting practices in an interview last week.

The complaint filed yesterday seeks class-action status and unspecified damages for all investors who bought company shares from Aug. 19, 2011, to Nov. 20, 2012.

Michael Thacker, a spokesman for Palo Alto, California-based Hewlett-Packard, declined to comment on the complaint.

The suit also names as a defendant Hewlett-Packard Senior Vice President James T. Murrin. As the company’s chief accounting officer during the period at issue, Murrin sold 132,500 shares for almost $3.5 million while “in the possession of materially adverse and non-public information,” according to the complaint.

Negative Trends

Hewlett-Packard is accused in the complaint of concealing negative business trends concerning the profit margins of its enterprise services business, formerly known as Electronic Data Systems Corp., which Hewlett-Packard acquired in 2008 for $13.2 billion under then-Chief Executive Officer Mark Hurd. As a result of the misleading statements, Hewlett-Packard’s stock traded at artificially inflated prices, according to the complaint.

Apotheker, while he was CEO, agreed in November 2011 to buy Autonomy for $10.3 billion to diversify away from hardware and expand into cloud computing and add software that searches a broad range of data, including e-mails, music, videos and posts on social networks such as Facebook Inc. Apotheker left in 2011 after less than a year on the job following repeated strategy shifts and forecast cuts.

The writedown is another blow for the company, which is already suffering from management turmoil and slowdowns in its personal-computer, printer and technology-services businesses.

Hewlett-Packard rose 2.4 percent to close yesterday at $12.74 in New York trading.

The case is Nicolow v. Hewlett-Packard Co., 12-05980, U.S. District Court, Northern District of California (San Francisco).

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